CSC and DH talks will drag on to June

CSC has failed to agree a new deal with the Department of Health for the North, Midlands and East to the deadline it outlined to investors just one month ago.

In an ‘update call’ for investors last night, Guy Hains, CSC’s president of healthcare, who is in the UK to lead the negotiations, said that the company has “effectively timed out on the letter of intent agreement” that was announced on 5 March.

However, he said that the “dialogue with the NHS is fundamentally going well” and that both parties had “renewed our standstill agreement until 1 June 2012” while talks continued.

EHealth Insider reported on 5 March that the DH expected to secure “savings” of £1 billion on its £3.1 billion local service provider deal with CSC, in return for a smaller volume commitment for the Lorenzo electronic patient record that it has been struggling to deploy in the NME.

Negotiations had already been going on for more than 18 months, since CSC missed a key deadline to deploy Lorenzo at a fourth ‘early adopter’ site, when Pennine Care NHS Foundation Trust pulled out of the programme.

In his call, Hains said outlined the progress of the talks, saying CSC had announced on 27 December that the memorandum of understanding that was on the table when Pennine Care pulled out was not going to go ahead.

He said both parties “signed a letter of intent on the revised scope and volumes for the programme” at this point, with a view to making this agreement legal by the end of March.

“At the time,” he added, “CSC took action to reduce our costs by redeploying or removing some 30% of the workforce on our NHS programme in the UK.”

He said that despite missing the end of March deadline to get a new deal in place, “both parties continue to see considerable merit in the revised structure we agreed in the letter of intent.”

He blamed the complexity of any agreement, and the changes to the NHS driven by the ‘Liberating the NHS’ reforms for the delay, saying the government’s determination to devolve more power to trusts would also require wide consultation on the outcome.

“I can confirm that both parties really want this agreement to work, and no specific roadblocks have been encountered.”

Hains said the write-down that CSC had taken meant that it had “written off its investment in the Lorenzo product.” However, he said “80% of the product is complete” and CSC now had two years of valuable experience of getting it working in the remaining early adopters.

Last week, other senior managers at CSC told EHI that University Hospitals of Morecambe Bay NHS Foundation Trust, the first acute early adopter, and most high profile trust to use the system, was starting to host visits for IT managers interested in the product.

Hains also said that he expected UK healthcare revenues to be approximately 2% to 3% of CSC’s overall revenues, but Lorenzo "will not be taking a significant part of that revenue for next year" so the company’s on-going forward risk "should really be seen as modest."

In response to questions from analysts on the call, Hains said he also expected to sell iSoft products to the US. ISoft developed Lorenzo and has a big base of installed products in the UK. CSC bought the company last summer.

"It is an active part of our plan to take iSoft software and capability to the US market," Hains said.

"ISoft themselves had look at that, but frankly didn’t have the financial resources or access to the market to do it. Clearly we can and that is under active planning."